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Customer Acquisition Cost

Definition - What does Customer Acquisition Cost mean?

Customer acquisition cost is the cost incurred by an organization while convincing a customer to buy a service or a product. In other words, it is the cost of resources for the business in order to acquire a new customer. Customer acquisition cost involves research, marketing and accessibility costs. Customer acquisition cost is an important business metric which helps organizations to determine the amount of resources that can be profitably spent on a specific customer.

Customer acquisition cost is also known simply as acquisition cost.

Techopedia explains Customer Acquisition Cost

Customer acquisition cost is usually expressed as a ratio between the sum total of customer acquisition cost and the number of customers/patrons acquired by the company as part of the customer acquisition strategy. It usually increases as the business or organization matures. When the diminishing return on customer acquisition cost starts, most businesses or organizations adopt different strategies for customer acquisitions. Expenses related to customer relations management & marketing automation, software licenses, sponsorships, content production & management, website & social media and gifts to customers all comprise customer acquisition cost. Companies often use the latest technology and innovations in social media as part of their marketing campaigns, and sophisticated software can be used in determining customer acquisition cost.

Often, customer acquisition costs are higher for companies which are selling a single product compared to ones who are selling multiple products. Customer acquisition costs are higher in the case of retailers using only a single channel compared to ones who are using multiple channels. Organizations can also change their marketing strategies and technology in order to lower the customer acquisition cost.

There are many benefits associated with the business metrics of customer acquisition cost. The most important benefits of customer acquisition cost is to help companies measure and help in planning and strategizing future capital allocations. Customer acquisition cost can help businesses to understand the worth of the customer to the company. It also helps in calculating the value of the customer to the company and return on investment of acquisition. Customer acquisition cost can help organizations to strategize the resource allocation in order to acquire a new customer. It also provides a more realistic picture to the costs incurred on the company’s financial statements.

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